Trump Accounts Are Here. Should Grandparents Contribute?

The new children's investment accounts are up and running. If you're a grandparent who wants to give a grandchild a financial head start, here's what you need to know — including how Trump Accounts compare with a 529 college plan.

By Randall BloomquistNext30ATL

Maybe you've been putting $500 into your granddaughter's 529 every birthday. Or you give the grandkids savings bonds. Or perhaps you've been meaning to start saving for them but haven't figured out the best way. Now you have another choice.

Trump Accounts officially became operational on July 4. They're investment accounts for children, and grandparents can contribute. For some qualifying kids, the federal government will even kick things off with $1,000 contribution.

The accounts were created by the 2025 federal tax law commonly known as the One Big Beautiful Bill Act, and the basic idea is pretty simple: Put money into an investment account while a child is young, leave it invested, and give compound growth a very long time to work.

That sounds attractive. But does it make more sense than putting the same money into a 529?

Let's take a look.

First, who gets the government's $1,000?

This is probably the most confusing part of the new program.

A child can qualify for a Trump Account without qualifying for the government's $1,000.

Generally, an account can be established for a child who has a valid Social Security number and hasn't turned 18 before the end of the year in which the account is established.

But the free $1,000 is available to a much smaller group: qualifying U.S.-citizen children born between Jan. 1, 2025 and Dec. 31, 2028 who have valid Social Security numbers.

So let's say you have two grandchildren. Your granddaughter was born in Atlanta in 2026. If she meets the requirements, Uncle Sam can put $1,000 into her Trump Account. Her 10-year-old brother doesn't get the $1,000. But an eligible account can still be established for him, and family members can contribute to it.

Grandma and Grandpa can contribute

This is where Trump Accounts become particularly interesting for Next30ATL readers.

The IRS allows contributions from parents, the child and other people. That includes grandparents.

Most private and employer contributions combined are limited to $5,000 a year during the child's growth period. That limit is scheduled to begin adjusting for inflation after 2027.

The government's $1,000 doesn't count against the $5,000 limit. Certain contributions from governments and charities don't count either.

There's also a source of money families shouldn't overlook...

Mom's or Dad's employer.

Employers can create Trump Account contribution programs and put as much as $2,500 a year into qualifying accounts for employees or their dependents. That money generally counts toward the $5,000 annual limit. By August, the Treasury Department said more than 50 companies had committed to offering Trump Account contributions.

So before Grandma writes a check, ask the child's parents: Does either of your employers contribute to Trump Accounts? If the answer is yes, find out how the benefit works first.

What happens to the money?

This isn't a children's savings account earning bank interest. The money gets invested in the stock market. During the child's growth period, Trump Accounts are generally limited to qualifying low-cost investment funds that primarily track U.S. companies.

The Treasury Department has selected the State Street SPDR Portfolio S&P 500 ETF as the default investment. The fund follows the performance of the S&P 500, roughly 500 of America's largest publicly traded companies.

Treasury has selected other qualifying index-fund choices as well. That means the account can rise and fall with the stock market. There are no guaranteed returns. The goal is long-term growth.

The 16-year-old can't raid it for a car

This may be one of the program's biggest attractions for grandparents.

Money generally can't be withdrawn while the child is in what's called the growth period.

There are a few exceptions involving situations such as certain account transfers, transfers to qualifying ABLE accounts and the death of the beneficiary.

Otherwise, the money stays put until the special Trump Account childhood restrictions end.

After that, the account essentially follows traditional IRA rules. So this isn't the place to put money you're promising your grandson for his first car.

Think much longer term.

But what about the 529 you already have?

This is the question many grandparents should be asking.

Suppose you have $2,000 to invest for your granddaughter this year. Should it go into her Trump Account or her 529? Start by asking what you want the money to accomplish.

If the answer is “help pay for college,” the 529 has a big advantage. Money invested in a 529 grows tax-deferred. When you withdraw it for qualified educational expenses, those withdrawals are generally free from federal income tax. Qualified expenses can include college tuition, fees, books, and certain room-and-board costs, along with other education expenses permitted under federal rules. The 529 owner also retains considerable control over the account.

A Trump Account is different. It's structured as a type of traditional individual retirement account. Family contributions generally become tax basis in the account, investment earnings grow tax-deferred, and later withdrawals are governed by the applicable IRA tax rules.

Here's an easier way to think about the difference:

A 529 says: “I'm helping pay for your education.”

A Trump Account says: “I'm helping you start building wealth.”

Those are both worthwhile goals. Just not the same goal.

What if my grandchild doesn't go to college?

That's the concern that makes some grandparents reluctant to put too much money into 529 plans.

What if your grandson gets a full scholarship? Goes into the military? Chooses a less expensive school? Or simply doesn't need everything you've saved?

The rules have become more flexible. In certain circumstances, unused 529 money can now be moved directly into a Roth IRA belonging to the beneficiary, i.e., the child for whom the 529 account was established.

There are several rules. The 529 generally must have been open for at least 15 years. Recent contributions face additional restrictions. Annual Roth IRA contribution limits still apply.

And there's a $35,000 lifetime limit on these 529-to-Roth transfers. So you shouldn't treat a 529 as just another retirement account. But the Roth provision reduces some of the worry about ending up with money stranded in an overfunded college account.

Here's what $1,000 could theoretically become

Suppose $1,000 is invested for a newborn and earns an average 7% annually.

Don't add another penny.

By 18, that $1,000 would theoretically be worth roughly $3,400.

At 30, it would be around $7,600.

Leave it invested until 65, and the original $1,000 could exceed $80,000.

Of course, those numbers are illustrations, not promises.

The stock market doesn't return 7% every year. Investments can lose money. Inflation reduces purchasing power, and taxes can matter when money eventually comes out. But the example demonstrates something grandparents understand particularly well: Time matters.

Now imagine adding $500 or $1,000 every birthday.

That's when compounding becomes much more powerful.

How do you open a Trump Account?

Parents, guardians and certain other people can establish an account using IRS Form 4547, Trump Account Election(s). You can also make the election through an IRS Individual Online Account. There is no fee to open one.

Grandparents may be able to establish an account in some circumstances, but IRS rules establish an order of priority for who can do so. For most families, there's an easier solution: Have Mom or Dad open the account. Then Grandma and Grandpa can contribute.

And because any new government financial program is likely to attract scammers, don't open an account because someone texts, emails, or calls you offering to “help.” Start with the official government Trump Accounts information.

So which account should grandparents choose?

If the child qualifies for the government's $1,000, opening the Trump Account deserves serious

consideration. You're starting with money the government is providing. If Mom's or Dad's employer contributes, investigate that benefit too. Then think about your own money.

If your main goal is helping pay for college, a 529 remains hard to beat because of its education-related tax advantages. If college savings are already in good shape and you'd like to give your grandchild an investment with a much longer horizon, the Trump Account becomes more interesting.

Nothing prevents a family from having both.

Maybe Grandma puts most of her annual gift into the 529 and a smaller amount into the Trump Account. One pot of money helps your granddaughter when the tuition bill arrives at 19.

The other might still be growing when she's 30, 40 or 50.

That's what makes these new accounts worth understanding.

You're not simply giving your grandchild money.

You're giving that money time.